TaxTMI 
TaxTMI 
2017 (2) TMI 503
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....elter Projects Ltd hold 50% each of the paid-up capital of the assessee. 4. During the previous year the authorised share capital of the assessee was increased from Rs. 5 crore to Rs. 55 crore . The assessee paid a sum of Rs. 25,00,000/-to the Registrar of companies (ROC) as fees for increase in the authorised share capital. The amount so paid was claimed as revenue expenditure and deductible while computing the income under the head income from business. 5. The AO made a reference to the decision of the Hon'ble Supreme Court in the case of Punjab State Industrial Development Corporation Limited vs CIT and Brooke Bond India Limited vs CIT 225 ITR 792 (SC) and 225 ITR 798(SC). In the aforesaid decisions, the Hon'ble Supreme Court held that fees paid to ROC for increase in authorised share capital is a capital expenditure. The deduction claimed was accordingly disallowed by the AO. 6. On appeal by the assessee the CIT(A) confirmed the order of AO. Before CIT(A) the assessee has raised alternative contention that under the provision of section 35D of the Income Tax Act, 1961 (Act) as amended by Finance Act 2008 w.e.f. 01.04.2009, preliminary expenses incurred for extension of....
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.... as Annexure to this order. The AO was of the view that the assessee follows mercantile system of accounting and therefore the expenditure relatable to the previous year relevant to A.Y.2009-10 alone can be allowed as deduction. He therefore disallowed the claim of the assessee for deduction of prior period expenses. 11. Before CIT(A) the assessee submitted that the expenses though related to prior period had crystallised as liability only during the previous year. It was the plea of the assessee that the bills and other details in respect of the aforesaid expenses were received during the previous year and therefore the liability in question had crystallised to the assessee only during the previous year. The CIT(A) however was of the view that the reasons advanced by the assessee were not convincing and therefore the prior period expenses cannot be allowed as deduction. 12. Before us the ld.counsel for the assessee reiterated the submissions made before CIT(A). He drew our attention to one of the items of the expenses given as annexure to this order namely 'Maintenance Expenses' of Rs. 1,21,817/- which was a sum paid to M/s. Tenacity Security who had raised the bill only on ....
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....essee is allowed. 14. Ground nos. 3 to 7 raised by the assessee read as follows :- "3. That the learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs. 44,42,85,000 representing consideration of unconstructed portion of 15% lease rights agreed to be transferred in five years of construction period of College Street Market Complex. 4. That the learned Commissioner of Income Tax (Appeals) erred in confirming the assessment of total amount of advance of Rs. 63, 12,00,000 received by the Appellant on account of transfer of 15% leasehold rights in College Street Market Complex agreed to be transferred on construction of the same in five years. 5. That the learned Commissioner of Income Tax (Appeals) erred in upholding the aforesaid addition of Rs. 63,12,00,000 as against the sum of Rs. 18,69,15,000 only representing transfer of leasehold right in 33,984.55 sq. ft. area of the College Street Market Complex which was constructed by 31 st March, 2009 and for which area the Appellant Company got leasehold rights from Kolkata Municipal Corporation in terms of development agreement dated 24th February 2006. 6. That the conclu....
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.... the assessee, 70% of the built up area will be reserved for the assessee and 30% of the build up area will be allotted to KMC to enable KMC to locate the existing licencees and the stall holders of the college street market. 70% of the built up area to be allotted to the assessee was only a lease hold right of the built up area. The assesse however had the right to deal with the lease hold rights in any manner it deems fit. The agreement dated 24.02.2006 was followed by another supplementary agreement dated 12.06.2006 between the assessee and KMC. 16. In pursuance of the aforesaid agreement with KMC, the assessee demolished the old structure after making suitable arrangements for shifting the existing occupants to the temporary accommodation. The assessee also made a final survey and prepared the building plan which was duly sanctioned by KMC. As per the terms of the agreement, the assessee could either carry out the development work itself or could appoint a contractor to carry out the development work. There was another subsidiary company of the assessee by name Square Feet Furnishers Pvt. Ltd. (SFFPL) which was later named as M/s. Barnaparichay BookMall Private Limited (BBMP....
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....supplementary agreement dated 31.03.2009 between the assessee and SFFPL/BBMPL. This agreement refers to the earlier agreement dated 6.3.2008 and further states that subsequent to the agreement dated 6.3.2008 the Assessee had decided to relinquish 1,23,600 Sq.ft. out its 70% share of leasehold rights in the built up area in the new market to be constructed in favour of SFFPL/BBMPL for a consideration of Rs. 63,12,00,000. SFFPL/BBMPL paid a sum of Rs. 57,16,68,000 to the Assessee. This agreement contains a schedule which identifies the location of the built up area to be allotted to SFFPL/BBMPL and its value and the same is as follows :- SCHEDULE OF ALLOCATION Block Floors Built up area Rate per sqft Total (Rs.) A 2nd 25,000 5500 137,500,000 3rd 25,000 5500 137,500,000 4th 25,000 5250 131,250,000 5th 25,000 4750 118,750,000 6th & 7th 23,600 4500 106,200,000 123,600 631,200,000 By a letter dated 31.03.2009 SFFPL/BBMPL specifically agreed that the area that has to be allotted to it will b....
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....d that the entire sum of Rs. 63,12,00,000/- has to be assessed as business income of the assessee for the current assessment year. Since the assessee has credited the P&L account by a sum of Rs. 18,69,15,000/-, the balance sum of Rs. 44,42,85,000/- was added back as business income of the assessee. 20. On appeal by the Assessee, the CIT(A) concurred with the view of the AO. The CIT(A) in upholding the order of the AO and came to the following conclusion :- "1. The arguments on behalf of the Assessee that profit/income in lieu of transfer of 15% of the leasehold rights to its subsidiary company, the BBMPL is assessable in its hands on project completion method cannot be accepted because what is transferred is not the right to share profit, but the leasehold rights vested in the Assessee. 2. There was no logic in distributing the amount received on transfer of lease-hold rights on the basis of project completion method. The disclosure of part of the income in the subsequent years on the project completion method or the treatment of the amount given in the accounts of the subsidiary company, BBMPL, would not by itself obliterate the appellant's obligation to d....
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....dismissed." 22. Aggrieved by the orders of CIT(A) the assessee has raised ground nos. 3 to 7 before the Tribunal. 23. We have heard the submissions of the ld. Counsel for the assessee and the ld. DR. The ld. Counsel for the assessee submitted that the Assessee does not dispute assessment of the sum of Rs. 18,69,15,000 in the assessment year 2009-10. However, the assessee company disputes the addition of the balance sum of Rs. 44,42,85,000 (Rs,63,12,00,000 - Rs. 18,69, 15,000). It was his submission that the Assessee received a sum of Rs. 57,16,68,000 from BBMPL and after recognising a sum of Rs. 18,69,15,000/- as income of the previous year, the balance amount of Rs. 38,47,53,000 (Rs.57,16,68,000 - 18,69,15,000) was shown as advance against the leasehold right appearing at Schedule 12 being details of Current liabilities & Provisions at Page 63 of the Paper Book. Similarly, BBMPL also capitalized the said sum of Rs. 18,69,15,000 in the financial year 2008-09 corresponding to the Assessment Year 2009-10. The audited accounts are at pages 78 to 94 of PB. The balance amount of 3,847.53 lacs was treated as advance against purchase of development rights. Our attention was drawn to....
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....five years as alleged by AO. It was submitted that the following amounts being part of the sum of Rs. 44,42,85,000 (Rs.63,12,00,000 - Rs. 18,69,15,000) has already been offered to tax by the Assessee as its income accrued to it in the following years, when the respective rights were transferred on completion of the work as agreed, and has been taxed accordingly. 31st March, 2010 Rs. 2,97,52,500 - page 105 of PB 31st March, 2011 Rs. 13,09,40,000 - Page 148 of PB M/s BBMPL also capitalized the aforesaid amounts in their Balance Sheet as detailed herein below. 31st March, 2010 Rs. 2,97,52,500 - page 130 of PB 31st March, 2011 Rs. 13,09,40,000 - Page 169 of PB It was argued that the assessment of the aforesaid sums have been accepted by the AO to be taxed in respective assessment years. In these facts and circumstances of the case it was submitted that the addition of Rs. 44,25,00,000 should be directed to be deleted. The ld. DR relied on the order of CIT(A). 24. We have given a very careful consideration to the rival submissions. The Assessee under an Agreement dated 24.2.2006 read with supplementary Agreement dated 12.6.2006 with KMC agree....
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.... construction and in respect of portions which remains incomplete, such area will be transferred only in the year of completion of construction. This letter is the basis on which the Assessee claims that accrual of income will be based on the completion of structure which is referred to as "Bare construction" in the said letter. 27. There is no dispute before us that the income in question is to be assessed under the head income from business. U/s.145 of the Act, income from business is computed in accordance with the regular method of accounting followed by the Assessee which could be either cash or mercantile system of accounting. The Assessee in the present case follows mercantile system of accounting. In mercantile accounting system, transactions are recorded on accrual basis, i.e., amount paid and payable or received or receivable in business for a period are recorded. The question is whether the sum of Rs. 44,42,85,000/- can be considered as having accrued to the Assessee. 28. Under the mercantile system of accounting there would be an accrual of the entire consideration agreed between the parties viz., Rs. 63,12,00,000/- as on 31.3.2009.. In fact the Assessee agrees th....